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An FI has made a loan commitment of SFr 1 0 million that is likely to be taken down in six months. The current spot
An FI has made a loan commitment of SFr million that is likely to be taken down in six months. The
current spot exchange rate is $
a Is the FI exposed to the dollar depreciating or the dollar appreciating? Why?
b If the FI decides to hedge using SFr futures, should it buy or sell SFr futures?
c If the spot rate six months from today is $ what dollar amount is needed in six month if
the loan is drawn?
d A sixmonth SFr futures contract is available for $ SFr What is the net amount needed at the
end of six months if the FI has hedged using the SFr million of futures contracts? Assume that
futures prices are equal to spot prices at the time of payment, that is at maturity.
e If the FI decides to use options to hedge, should it purchase call or put options?
f Call and put options with an exercise price of $ are selling for $ and $ per
respectively. What would be the net amount needed by the FI at the end of six months if it had used
options instead of futures to hedge this exposure?
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